ACIT(OSD), RANGE-10, NEW DELHI, ITO, C.R. BUILDING V. THE ORIENTAL INSURANCE CO LTD, DARIYA GANJ, CENTRAL DELHI

ITA 2745/DEL/2024

AI Insights

The case involves the Assistant Commissioner of Income Tax, Circle-10(1), New Delhi as the appellant and M/s Oriental Insurance Co. Ltd. as the respondent. The appeal by the Revenue challenges the order of the CIT(A) which had deleted several additions made by the Assessing Officer under the Income Tax Act, 1961 for the Assessment Year 2017-18. The main issues revolved around the taxability of profit from the sale of investments, disallowances under section 14A, and the treatment of provisions made for Standard Assets. The Tribunal considered previous judgments and the specific provisions of the Income Tax Act applicable to insurance companies, particularly section 44 and the first schedule of the Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31728 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2017-2018
• Other Referred Cases: Oriental Insurance Co. Ltd. V. DCIT, Goetze (India) Ltd. vs. CIT, Integrated Mining Ltd. vs. DCIT, Shobha Developers Ltd. vs. DCIT, THE COMMISSIONER OF INCOME TAX-8 VS. M/S BENGAL FINANCE & INVESTMENTS PVT. LTD., Rolta India Ltd., MAXOPP Investment Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT KATOCH
• Assessee Lawyers: TARANDEEP SINGH
• Keywords: Set aside; Question of law; Rule of consistency; Rule 8D; CHAPTER IV
• Section: 143(3); 11; 234B; 12; 28; 14A; 115JB; 101

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘H’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.2745/Del/2024 [Assessment Year: 2017-18] Assistant Commissioner of Income Tax, Circle-10(1), New Delhi Vs M/s Oriental Insurance Co. Ltd., A-25/27, Oriental House, Asaf Ali Road, New Delhi-110002 PAN- AAACT0627R Revenue Assessee Assessee by Shri Tarandeep Singh, CA Revenue by Shri Amit Katoch, Sr. DR Date of Hearing 28.10.2024 Date of Pronouncement 24.01.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal filed by the Revenue is directed against the order dated 26.03.2024 of the National Faceless Appeal Centre (NFAC)/Ld. Commissioner of Income Tax (Appeals), Delhi, arising out of order dated 30.09.2021 under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) relating to Assessment Year 2017-18. 2. The grounds of appeal raised by the Revenue are as under:- 1) \"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the addition of Rs. 1103,09,03,443/- on account of profit on sale of investment (normal provision)? 2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the disallowance of Rs. 2,30, 10,949/- on account of U/s 14A of the Act (normal provision and provision u/s 115JB of the Act)? 2 ITA No.2745/Del/2024 3) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the addition of Rs. 4,70,60,000/- on account of provision made for Standard Assets? 4) Whether on the fact and circumstances of the case CIT(A) was correct on fact that the view of Hon'ble High court in the case of Oriental Insurance Co. Ltd. V. DCIT order dated 30.08.2017 is in favor of assessee ignoring the fact the Hon'ble High court supports the view of the Revenue that profit from sale of investment is taxable w.e.f. A. Y. 2011-12 and issue of applicability of section 10(38) was not before the court.” 3. Brief facts of the case:- The assessee is a Public Sector Undertaking of Government of India and is in the business of Non-Life Insurance, The assessee offers insurance covers for large projects like power plants, petrochemical, steel and chemical plants. It also offers various insurance products like Motor Policies, Health-Medi- claim/Overseas Medi-claim Personal Accident, Motor Vehicle, Agriculture/ Sericulture / Poultry, Aviation, Marine and other miscellaneous policies. The assessee company had filed its return of income on 27.10.2017 declaring total income at Rs. Nil (Loss of Rs. 3244,79,35,245 ). Subsequently, the return of income was revised by the assessee on 14.03.2019, wherein, the assessee declared loss of Rs.(-) 3244,79,35,245/- under normal provisions of the Income tax Act. 1961 ('Act') and book profit of Rs. (-)2170,61,02,786/- under 115JB i.e. MAT scheme. 4. At the very outset, the ld. Counsel for the assessee stated that all the issues have been considered and decided by this Tribunal in favour of the assessee in assessee’s own case in earlier Assessment Years. The Ld. Counsel for the assessee filed a brief synopsis in respect of all the above 3 ITA No.2745/Del/2024 four grounds along with copy of the relevant judgments. The brief synopsis filed by the ld. Counsel for the assessee is reproduced as under:- 4 ITA No.2745/Del/2024 5. The Ld. DR supported the order of the Assessing Officer but could not bring any distinguishing facts or any decision in favour of the Revenue in respect of the grounds of the appeal filed by it. 6. We have considered the rival submissions and perused the materials available on record. In respect of ground nos. 1 and 4, the Co- 5 ITA No.2745/Del/2024 ordinate Bench of the Tribunal in the latest order vide dated 31.07.2023 in ITA No.6444/Del/2019 for Assessment Year 2016-17 allowed the appeal of the assessee by observing as under:- 5. Issues raised vide ground No.1 with all its sub grounds was considered by this Tribunal in ITA No.1952/Del/2018 and 1750/Del/2018 for A.Y.2013-14. A similar issue was considered at para-6 of its order and at para 6.1 the coordinate Bench followed the order of this Tribunal for A.Y.2011-12 and concluded as under :- “Accordingly, the issue is decided in favour of the assessee and Ld. AO is directed to verify about the status of STT payment and accordingly allow the exemption u/s. 10 (38) of the Act.” 6. On finding parity of facts we order accordingly. 6.1. The facts are identical in the case of the assessee for the present assessment year also. Therefore, following the order of the Co-ordinate Bench, this issue is decided in favour of the assessee and the Assessing Officer is directed to verify the status of STT payment and accordingly allow the exemption u/s 10(38) of the Act. 7. In ground no.2 the Revenue has contested the action of the Ld. CIT(A) in deleting the disallowance of Rs.2,30,10,949/- on account of u/s 14A of the Act both under the normal provision and as well as the provisions u/s 115JB of the Act. The disallowance of 14A under the normal provisions of the Act was decided against the Revenue by the Hon’ble Delhi High Court in the case of the assessee company in ITA No.172/2020 vide order dated 04.03.2020. The relevant discussion in para no.9 & 10 of the said order is reproduced as under:- “9. We have heard learned counsels and are of the view that no substantial question of law arises for our consideration. The Tribunal has interpreted Section 44 read with the first schedule 6 ITA No.2745/Del/2024 and concluded that applicability of Section 14A is excluded in relation to computation of income of an insurance company. We have examined the relevant provisions. Section 44 begins with a non-obstante clause and overrides the other provisions of the Act as mentioned therein including Section 14A. We are not convinced with the submission of Mr. Ajit Sharma that Section 14A would be applicable in respect of the Respondent. Section 14A does not have independent legs to stand on. Section 14A inter alia begins with the words “for the purposes of computing the total income under this chapter, no deduction shall be allowed in respect of expenditure incurred................”. The chapter in question is chapter IV. This chapter also contains the provisions relating to computation of profits and gains of business or profession. Section 44 specifically excludes the provisions of the Act relating to computation of income, inter alia, those contained in “Section 28 to 43B”. Thus, the exclusion would take within its sweep Section 14A which is an exemption for deductions as allowable under the Act, as provided under Section 28 to 43B. Further, Section 44 is a special provision applicable in the cases of insurance companies and applies, notwithstanding anything to the contrary contained in the provisions of the Income Tax Act relating to the computation of income chargeable under different heads. For computing the profits and gains of the business of insurance company, the AO had to resort to Section 44 and the prescribed rules, and could not have applied Section 28 to 43B, since the same were excluded from the purview of Section 44. This necessarily includes the exception provision enshrined under Section 14A of the Act. Therefore, in our view, the AO could not have travelled beyond Section 44 in the first schedule of the Act. Besides, the tribunal has also invoked the rule of consistency since the same view of the Tribunal has prevailed in respect of the earlier assessment years i.e. 2000-01, 2001-02 and 2005-06. 10. We also do not find merit in the submission of Mr. Sharma that the Tribunal should have remanded back the matter to the Assessing Officer for computation of income of the Respondent-assessee in terms of first schedule of the Act, since that was not even a ground urged by the Revenue before the Tribunal. At this stage, it is too late in the day for the Revenue to argue that notwithstanding the grounds urged to challenge the order of the CIT (A), the Tribunal should have ventured into examining the merits of the computation of income of the Respondent assessee in terms of Section 44 read with the first schedule of the Act. No doubt, the Tribunal is a final factfinding body. However, when the Revenue confined its challenge only in respect of the applicability of Section 14A, we cannot find fault in the impugned order, on the basis of submissions not advanced before the Tribunal. We, therefore do not find any substantial question of law arising in relation to the view taken by the Tribunal.” 7 ITA No.2745/Del/2024 7.1. Further, the addition of the aforesaid disallowance of Rs.2,30,10,949/- on account of u/s 14A of the Act under the provisions of section 115JB of the Act has been decided against the Revenue by the Co-ordinate Bench of the Tribunal in the case of the assessee for AY 2015-16 in ITA No.5834/Del/2018, vide order dated 24.09.2021. The relevant discussion is reproduced as under:- 14. Ground of appeal No.3 by the Revenue reads as under:- “3. On the facts and the circumstances of the case and in law, Ld. CIT (A) has erred in deleting an addition of Rs.25,85,91,755/- being disallowance u/s 14A of the I.T. Act made by the A.O. for the purpose of 115 JB of the Act.” 15. Facts of the case, in brief, are that the AO computed the book profit u/s 115JB by adding the disallowance u/s 14A made by him at Rs.25,85,81,755/-. In appeal, the ld.CIT(A), following the order for A.Y. 2014-15, deleted the addition made by the AO at Rs.25,85,81,755/- for the purpose of computation of book profit u/s 115JB of the IT Act. 16. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal. 17. The ld. DR heavily relied on the order of the AO. 8. The ld. Counsel for the assessee, on the other hand, while supporting the order of the CIT(A), submitted that the AO made the disallowance u/s 14A r.w. Rule 8D while computing the book profit u/s 115JB without appreciating the following two issues:- “1. Method of computation of disallowance prescribed under Rule 8D is not applicable while computing Book Profit u/s 115JB. 2. Provisions of sub-section (2) and (3) of section 14A cannot be imported into clause (f) of Explanation to section 115JA while computing adjusted book profit.” 19. Referring to the decision of the Tribunal in the case of Goetze (India) Ltd. vs. CIT, reported in 32 SOT 101 (Del), the decision of Kolkata Bench of the Tribunal in the case of Integrated Mining Ltd. vs. DCIT, reported in 67 taxmann.com 260 and the decision of the Hon’ble Karnataka High Court in the case of Shobha Developers Ltd. vs. DCIT, reported in 434 ITR 266 (Kar.), he submitted that the issue stands squarely covered in favour of the assessee. 8 ITA No.2745/Del/2024 20. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find, the AO, in the instant case, made addition of Rs.25,85,81,755/- which was disallowed by him u/s 14A of the Act for computation of the book profit u/s 115JB of the IT Act. We find, the ld.CIT(A), following the orders of his predecessor, deleted the addition of Rs.25,85,81,755/- being the disallowance u/s 14A of the Act made by the AO for the purpose of section 115JB of the Act. We do not find any infirmity in the order of the CIT(A) on this issue. We find, the Hon’ble Karnataka High Court in the case of Shobha Developers Ltd. (supra) has held that disallowance made u/s 14A could not be added to book profit of the assessee u/s 115JB of the Act. The relevant observations of the Hon’ble High Court read as under:- “6. We have considered the submissions made on both sides and have perused the record. Before proceeding further, it is apposite to take note of relevant extract of Section 115JB of the Act, which reads as under: 115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one- half per cent. (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (i) the amount or amounts set aside as provision for diminution in the value of any asset, if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss or if any amount referred to in clause (j) is not credited to the statement of profit and loss, and as reduced by,-- (i) the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April, 1997 otherwise than by way of a debit to the statement of profit and loss), if any such amount is credited to the statement of profit and loss: (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. 7. Thus from perusal of the relevant extract of Section 115JB, it is evident that Sub-Section (1) of Section 115JB provides the mode of computation of the total income of the assessee and tax payable on the assessee under Section 115JB of the Act. Sub-Section (5) of Section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this Section. Therefore, any expenditure relatable to earning 9 ITA No.2745/Del/2024 of income exempt under Section 10(2A) and Section 10(35) of the Act is disallowed under Section 14A of the Act and is added back to book profit under clause (f) of Section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., Sub-Section (1) and (5) of Section 115JB of the Act. It is also pertinent to mention here that the amounts mentioned in clauses (a) to (i) of explanation to Section 115JB(2) are debited to the statement of profit and loss account, then only the provisions of Section 115JB would apply. The disallowance under Section 14A of the Act is a notional disallowance and therefore, by taking recourse to Section 14A of the Act, the amount cannot be added back to book profit under clause (f) of Section 115JB of the Act. It is also pertinent to mention here that similar view, which has been taken by this court in Gokaldas Images (P) Ltd. supra was also taken by High Court of Bombay in 'THE COMMISSIONER OF INCOME TAX-8 VS. M/S BENGAL FINANCE & INVESTMENTS PVT. LTD.', I.T.A.NO.337/2013. It is pertinent to note that in Rolta India Ltd., the Supreme Court was dealing with the issue of chargeability of interest under Section 234B and 234C of the Act on failure to pay advance tax in respect of tax payable under Section 115JA/ 115JB of the Act and therefore, the aforesaid decision has no impact on the issue involved in this appeal. Similarly, in MAXOPP Investment Ltd., supra the Supreme Court has dealt with Section 14A of the Act and has not dealt with Section 115JB of the Act. Therefore, the aforesaid decision also does not apply to the fact situation of the case. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the assessee and against the revenue. In the result, the order passed by the tribunal dated 09.01.2015 insofar as it pertains to the findings recorded against the assessee is hereby quashed. In the result, the appeal is allowed.” 21. Respectfully following the decision of the Hon’ble Karnataka High Court, cited (supra) we hold that the disallowance made u/s 14A could not be added to the book profit u/s 115JB of the Act. Accordingly, the order of the CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed.” 7.2. The facts are identical in the case of the assessee for the present assessment year also. Therefore, respectfully following the order of the of the Hon’ble High Cour and the Co-ordinate Bench, the order of the Ld. CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed. 10 ITA No.2745/Del/2024 8. The ground no.3 raised by the Revenue has been decided against the Revenue by the Co-ordinate Bench of the Tribunal in the case of the assessee for AY 2016-17 in ITA No.6444/Del/2019, vide order dated 31.07.2023. The relevant discussion is reproduced as under:- 10. Issue raised vide ground No.4 were considered by the coordinate Bench at para – 6.4 of its order and at para – 6.5 following the order for A.Y.2011-12 held :- “ The issue No.14 is decided in favour of the assessee” 11. Respectfully following the decision of the coordinate bench this ground is decided in favour of the assessee. 8.1. This issue was discussed by the Co-ordinate Bench in ITA No.4535/Del/2016, wherein, the Co-ordinate Bench deleted the said additions vide order dated 30.06.2021, the relevant discussion of which in para no.11.11 is reproduced as under:- “11.11 As a result, we find that there is no enabling mechanism in Rule 5(a) mandating an adjustment to disclosed profits by making an addition on account of provision made for Standard Assets. The Ld. CIT (DR) has relied upon decision of the coordinate bench of this Tribunal in case of Chaitanya Godavari Grameena Bank (supra). However, in that case the assesee was a bank and had claimed deduction on account of Provision for Standard Assets u/s 36(1)(viia). This was not a case of an Insurance Company to which provisions of Rule 5 was applicable. As already held above, under Rule 5 the Statute makes profit disclosed in Profit and Loss account sacrosanct subject only to adjustments prescribed in Rules 5(a) to 5(c). The case law relied is, therefore, distinguishable. The Ld. CIT (A), in AY 2011-12, has also not properly addressed the issue. Relevant statutory provisions have been inadvertently misread and hence not properly understood. We therefore delete the disallowance and for reasons given by us above Ground No 4 is allowed.” 8.2. The facts are identical in the case of the assessee for the present assessment year also. Therefore, respectfully following the order of the 11 ITA No.2745/Del/2024 Co-ordinate Bench, the order of the Ld. CIT(A) on this issue is upheld and the ground raised by the Revenue is dismissed. 9. In the result, the appeal filed by the Revenue is partly allowed. Order pronounced in the open court on 24th January, 2025. Sd/- Sd/- [ANUBHAV SHARMA] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 24.01.2025. f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Assessee 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi, "